From The Bulletin Index, 9 April 1936.
Thus far this year U. S. investment bankers have
marketed $1,000,000,000 worth of new securities, but very little of this
sum has reflected any desire on the part of businessmen to build new
plants or buy new equipment. With few exceptions the bulk of corporate
financing has been refunding--swapping new cheap money for old. Last week
the bond market perked up to absorb the most notable big exception in
years--the $30,000,000 Jones & Laughlin Steel Corp. issue of 4.25 % first
mortgage bonds, of which three-quarters will go into new steel mills. The
Jones & Laughlin flotation was the biggest "new money" financing since
Depression.
J&L originally planned to put out $40,000,000 worth of bonds at 4%
early in March, but the unsettled European condition and general shakiness
of the securities market following the poor reception of Shell Union bonds
caused it warily to hang back for a time. The
Great Flood, which did an estimated damage of between
$750,000 and $1,000,000 to its mills, further delayed the issue.
Playing on the safe side meantime, J&L trimmed the original
issue by a clear $10,000,000, upped the interest rate a full .25%,
and arranged for a $5,000,000 bank loan from Mellon and Union
Trust. But any fears that the J&L issue might run into difficulty
after these precautions were quickly dissipated last week.
Demand for the bonds was so brisk that the syndicate headed by
nine-months-old Mellon Securities was able to
close its books the very first day. Pittsburghers alone
bought $12,000,000 worth of the bonds, with banks & trust funds big
buyers. Few U. S. corporations could expect so warm a reception by the
investing public, but J&L, whose name and history are Steel legend, is
famed & respected among both public and the industry.
An integrated
unit which even rival steelmen concede is one of the finest
steel producing properties in operation, J&L owns extensive Lake
Superior ore beds through subsidiaries and a 7% ownership in Mesaba-Cliffs
Mining Co., mines 95% of its own coal, quarries 40% of its
limestone, has all the blast furnaces, open-hearth
furnaces and coke ovens it needs, spur railroads, river fleets, freight
warehouses in principal U. S. cities. At its titanic South Side and
Aliquippa mills which together extend for seven grimy miles
along the Monongahela River, J&L employs 22,000 workers and
can turn out 3,420,000 tons of iron & steel. In Aliquippa, largest steel
company dominated town in U.S., J&L owns the gas, electric, water and
street car utilities.
It makes every steel product known except heavy rails and armor
plate, and should all its local competitors go out of business, J&L
could easily supply all needs by itself. Most important asset is its
inland waterways system which saves it upwards of $5,000,000,
a year in hauling charges. It owns 10 towboats, 165 barges. Coal
is hauled from company mines to mills by water at savings of 75c per ton.*
J&L pioneered hauling finished steel down river to Southern markets
as far as New Orleans (1,190 mi.), originating the practice in 1921
when Pittsburgh Plus got a kick in the pants. Today J&L's finished steel
shipments via river total 240,000 tons annually, and it runs two tows a
month of pipe for the oil industry, tinplate for packers, and wire &
nails for farmers, down the Ohio and Mississippi Rivers.
Were it only for the facts that it is the fourth largest steel
producer in the U. S. and the only big independent which grew without
merger or consolidation, J&L would be singular in the industry. What
makes it positively unique is that it is the only major family-controlled
steel company in the U. S. with ownership &
management in the hands of the third-generation descendants of the
original founders.
J&L was already an old firm and had invented the process of
cold rolling when Andrew Carnegie was still a telegraph messenger boy.
Canny Carnegie made it his business to deliver all messages to Founder
Benjamin Franklin Jones who took a liking to him, tipped 26c each time.
B. F. Jones was 21 when he quit operating the
Philadelphia-Pittsburgh canal barge line to fire a blast furnace which was
a failure but nothing daunted, B. F. Jones bought a part interest in an
iron works on Pittsburgh's South Side where
J&L's present-day mill now stands. Three years later (1854) James
Laughlin, rich Pittsburgh banker who owned a blast furnace and was 17
years Jones' senior, became his partner. Laughlin had gone into banking
from a prosperous slaughter-house business, spent his spare
time founding Pennsylvania College for Women and as first
president of the Western Theological Seminary (Presbyterian).
White-whiskered B. F Jones' extra-curricular activities consisted of
serving as chairman of the 1884 Republican National Committee which
nominated his boyhood chum James G. Blaine
for President, originating the universally used wage system known as the
"sliding scale" by which mill workers got paid according to price of
product, rather than tonnage.
Today J&L is a $181,000,000 corporation owned & run by grandsons of the founder, their cousins & in-laws. Consequently, prevalent impression among Pittsburghers has long been that J&L stock was tightly held among the Joneses and Laughlins. Therefore a statement regarding stock control which appeared in the 56 page prospectus last week to the effect that no one person held as much as 10% of any class of stock was a distinct surprise. Biggest stockholders: Grandson B. F. Jones III owns 43,261 common, 20,137 preferred; Grandson Geo. McCully Laughlin Jr. owns 24,358 common, 16,502 preferred; Grand nephew William Larimer Jones Jr. owns or controls 18,908 common, 16,213 preferred, Great Grandson Ledlie Laughlin of Princeton, N. J. owns 13,518 common, 9,319 preferred.** J&L's capitalization consists of 600,000 shares common, 600,000 shares preferred. Only time J&L sold stock to the public was in 1922 at the time of its incorporation. Par for both stocks is $100, but last week investors could have bought J&L common at $34, its preferred at $86. For Jones & Laughlin Steel Corp. has paid no common dividends since 1931, and dividends on preferred are now in arrears $23 a share.
Suffering with the hardest-hit corporations, J&L lost $19,000,000
during the Depression stretch 1930-36--a far cry from the eight-year period
from 1922-30 when it made $100,000,000 profit and paid out $39,000,000
dividends. Worst year was 1932 when sales fell 400% from 1929 peak to
$40,000,000 and it lost $8,000,000. Though every major steel producer was
back in the black again last year, only J&L limped behind with a $390,000
loss.
J&L's poor Depression record and slow recovery is due to the fact
that 70% of its business is in pipe, merchant bars and structural
steel, biggest buyers of which are construction and oil industries.
Depression knocked the daylights out of construction and oil,
and consequently, J&L. J&L, moreover, had absolutely no facilities
for making light-weight strip steels which are and have been during
Depression the industry's money-makers. With $25,000,000 from sale of its
bonds J&L plans to remedy this lack by building a continuous sheet &
strip mill at its South Side works.
Last week it broke ground for the site, expects to have the mill in
operation early next year. The mill will add 760,000 tons to J&L's
capacity, enable it to make 75% of profitable auto parts
instead of only 20% heretofore. Remainder of money J&L will spend
in paying for a blooming mill now a-building, cleaning up all but a
$1,000,000 of its outstanding funded debt. Sole funded debt will now
consist of $36,000,000. J&L is in excellent financial
condition despite its financial reverses. It has $18,000,000 earned
surplus, $45,000,000 current assets against $6,000,000 current
liabilities.
Day before its bonds went to market, J&L unexpectedly published an announcement which all but relegated even its bond issue to a back seat in the news. Top job in J&L is boardchairman and last week after eight years in that rarified atmosphere George McCully Laughlin Jr., resigned his post. Because J&L is notably chary of discussing its personal affairs with the public, it was difficult last week to put a finger on the real reason for his resignation, though there were the usual number of theories--good & bad. One said a family squabble; another that the bankers had dictated new blood. But observers who had an ear to the ground thought they detected a more plausible reason, closely akin to that which kept J&L fumbling around for the proper president. These observers last week perceived a change of type of executive.
Until 1927 no one but a Jones had been president of J&L. After the partnership became a company in 1902, B. F. Jr. succeeded his father as president. When the company became a corporation in 1922, he became boardchairman and his cousin, William Larimer Jones Jr. was made president. Cousin William, son of T. M. Jones, brother to the original B. F., was one of the ablest operating men in the industry. When he died in 1926 Charles A. Fisher (now president of Pitt National Bank), who had risen from bookkeeper to vice president in charge of finance, was given the job. This choice was dictated because J&L had a $25,000,000 funded debt and the spot called for a financial man. But following year its income dipped $4,000,000 to $1,000,000 and in 1926 J&L got a new president--an operating man. He was tough-thewed Tom Girdler, onetime Aliquippa mill superintendent, who shot J&L's profits to $15,000,000 in 1928, $20,000,000 in 1929. But tough Tom Girdler, so the story went, embarrassed the Joneses & Laughlins socially and when Republic came after him strong, J&L was evidently not loath to let him go.
J&L's next president was quiet, brilliant George Gordon Crawford whom J&L hired away from Tennessee Coal, Iron & Railroad Co. at $250,000 a year. Crawford bucked Depression, left in 1934 in poor health to which he finally succumbed three weeks ago. Government codifying and stiff competition demanded a star salesman and J&L had to look no further than its own vice president of sales--Samuel E. Hackett. A Coralville, Iowa farmboy, Sam Hackett was longtime manager of Chicago's Joseph T. Ryerson Co. warehouses before going over to manage Jones & Laughlin's Chicago warehouse in 1916. Now 53 and a golf bug, he gets $49,000 a year salary--which is small compared to what Crawford and Girdler drew down. But salaries have thinned at J&L. Vice presidents who worked for $75,000 in 1929 now get $36,000, and even George M. Laughlin Jr. was paid the same salary last year as President Hackett.
Two years after W. L. Jones Jr. died, death came to B. F. Jones Jr., and George M. Laughlin Jr. who was head of the South Side mills, stepped into the job. George Laughlin's father, a Civil War brevet-major who served with Grant at Lee's surrender, never achieved a ranking status with the family firm. Nor, for that matter, did very many Laughlins, for most of them preferred to work at steel perfunctorily, else retire to milder pursuits. George Laughlin's brother, Irwin, worked in the family mills dispiritedly for a few years then gave them up to become a career diplomat and Ambassador to Spain. Now 63 and one of the ablest Laughlins in the family history, George McCully Laughlin is an operating man. But what J&L now needs is a super-salesman who can promote the products which shortly will stream from its new strip mill. Last week J&L reached into Columbus, O. and plucked Horace Edward Lewis from his post as Jeffrey Manufacturing Co. executive committee chairman for the job as J&L boardchairman. And for the first time in its history, Jones & Laughlin was without either a Jones or a Laughlin in either one of the two top positions.
And it will be ten years or more hence, before there is, for the
eligible Joneses and the Laughlins coming up through the company are still
young. Affable Benjamin Franklin Jones III is 41, lives with his mother
and wife in a 100-room house in Sewickley, gets $15,000 a year as
secretary of the company. He has been with the
company since 1919 when he left Princeton in his sophomore year. Cousin
William Larimer Jones Jr., son of the onetime president, is 41, smart, and
was recently made vice president. George M. Laughlin III,
thirtyish, a wag and son of the retired boardchairman is a company
salesman.
But the Joneses and the Laughlins could have trusted their
traditions to few hands more capable than those of Horace Edward Lewis. A
dynamic, forceful tycoon built along the Girdler line, he is regarded
highly in the industry, and steelmen reckon his coming to
J&L a big constructive step for the company. Born in Wales 53 years
ago, he came to America when a boy, started to work in Pittsburgh's
Carnegie Steel mills as a tool-dresser when he was 17. He was 24 years
with Bethlehem Steel, rising to executive vice president. Story is that
he left Bethlehem because the company
wasn't big enough to hold both Eugene Grace and he. For the past seven
years he has been with $10,000,000 Jeffrey Mfg. Co., big firm which makes
elevating and conveying machines, coal mining
& material hauling machinery, electric & storage battery locomotives,
coal drills, etc. Married, Mr. Lewis has three children, plays tennis.
Transcribed by sla.
